Question 1

Political risk

Accepted Answer

A) can be greatly reduced by minimizing parent company involvement. 
B) varies by industry as well as by country. 
C) is solely dependent upon the country in which operations are located. 
D) is only faced by firms that have international operations. 
E) applies only to those risks associated with a firm's domestic laws and regulations. 
A) can be greatly reduced by minimizing parent company involvement. 
B) varies by industry as well as by country. 
C) is solely dependent upon the country in which operations are located. 
D) is only faced by firms that have international operations. 
E) applies only to those risks associated with a firm's domestic laws and regulations.

Question 2

You just returned from some extensive traveling.You started your trip with $25,000 in your pocket.You spent €7,800 traveling throughout the European Union,5,500NKr in Norway,and £9,100 in the United Kingdom.The exchange rates were $1 = €.8031,1NKr = $.1422,and £1 = $1.5649.How many dollars did you have left by the time you returned to the United States?

Accepted Answer

A) $9,404.58 
B) $7,211.38 
C) $5,304.49 
D) $264.95 
E) $3.87 
A) $9,404.58 
B) $7,211.38 
C) $5,304.49 
D) $264.95 
E) $3.87

Question 3

How many euros can you get for $864 if the direct quote is 1.2452?

Accepted Answer

A) €728.72 
B) €693.86 
C) €847.06 
D) €1,092.96 
E) €1,075.85 
A) €728.72 
B) €693.86 
C) €847.06 
D) €1,092.96 
E) €1,075.85

Question 4

You are considering a project in India which has an initial cost of 250,000RS.The project is expected to return a one-time payment of 425,000RS 5 years from now.The risk-free rate of return is 2.7 percent in the United States and 4.3 percent in India.The inflation rate is 2.2 percent in the United States and 5.3 percent in India.Currently,you can buy 6,300RS for $100.How much will the payment 5 years from now be worth in U.S.dollars?

Accepted Answer

A) $6,231 
B) $7,060 
C) $7,201 
D) $7,313 
E) $6,515 
A) $6,231 
B) $7,060 
C) $7,201 
D) $7,313 
E) $6,515

Question 5

Which of the following are means of repatriating funds from a foreign operation?

Accepted Answer

A) Nationalization,confiscation,and exploitation 
B) Blocked funds,home office fees,and dividend payments 
C) Interest payments on foreign debt,dividend payments,and management fees 
D) Royalties,management fees,and dividend payments 
E) Wages to foreign employees,interest payments on foreign debt,and sales fees to foreign agents 
A) Nationalization,confiscation,and exploitation 
B) Blocked funds,home office fees,and dividend payments 
C) Interest payments on foreign debt,dividend payments,and management fees 
D) Royalties,management fees,and dividend payments 
E) Wages to foreign employees,interest payments on foreign debt,and sales fees to foreign agents

Question 6

Assume today you can exchange $1 for €.8026,while 1 month ago €1 was worth $1.2272.Assume you converted €300 into dollars last month and then converted your dollars back to euros this week.What is your net profit or loss in euros?

Accepted Answer

A) €3.82 
B) −€4.51 
C) −€3.78 
D) €3.49 
E) −€4.91 
A) €3.82 
B) −€4.51 
C) −€3.78 
D) €3.49 
E) −€4.91

Question 7

A gift you want to buy costs $119 in Canada.Assume purchasing power parity exists and you can exchange $1 for Can$1.14 or you can exchange ¥119.2 for $1.How much will the same gift cost in Japan?

Accepted Answer

A) ¥11,668 
B) ¥12,443 
C) ¥13,603 
D) ¥15,843 
E) ¥16,171 
A) ¥11,668 
B) ¥12,443 
C) ¥13,603 
D) ¥15,843 
E) ¥16,171

Question 8

Assume the international Fisher effect exists and the inflation rate in the U.S.exceeds the inflation rate in Canada.What can we state for certain given this information?

Accepted Answer

A) Nominal rates in the United States exceed nominal rates in Canada. 
B) Real rates in Canada exceed real rates in the United States. 
C) The inflation rate in Canada will increase so it equals the U.S.inflation rate. 
D) Nominal rates in Canada exceed nominal rates in the United States. 
E) Nominal rates will be the same in both countries. 
A) Nominal rates in the United States exceed nominal rates in Canada. 
B) Real rates in Canada exceed real rates in the United States. 
C) The inflation rate in Canada will increase so it equals the U.S.inflation rate. 
D) Nominal rates in Canada exceed nominal rates in the United States. 
E) Nominal rates will be the same in both countries.

Question 9

A foreign bond issued in the United States and denominated in U.S.dollars is called a(n)

Accepted Answer

A) American Depository Receipt. 
B) gilt. 
C) Eurobond. 
D) Yankee bond. 
E) swap bond. 
A) American Depository Receipt. 
B) gilt. 
C) Eurobond. 
D) Yankee bond. 
E) swap bond.

Question 10

Which one of these is a suggested means of reducing long-run exposure to exchange rate risk?

Accepted Answer

A) Compiling financial statements only in foreign currency terms 
B) Using foreign resources to produce products sold in that foreign region 
C) Borrowing domestic currency,exchanging it for foreign currency,and investing it in foreign investments 
D) Ensuring any foreign operation requires significant parent company involvement 
E) Using current spot rates to fund long-term assets 
A) Compiling financial statements only in foreign currency terms 
B) Using foreign resources to produce products sold in that foreign region 
C) Borrowing domestic currency,exchanging it for foreign currency,and investing it in foreign investments 
D) Ensuring any foreign operation requires significant parent company involvement 
E) Using current spot rates to fund long-term assets

Question 11

Which one of these expresses the concept that a commodity will cost the same regardless of where the commodity is located or the currency used to pay for it?

Accepted Answer

A) Interest rate parity 
B) Uncovered interest rate parity 
C) Absolute purchasing power parity 
D) International Fisher effect 
E) Relative purchasing power parity 
A) Interest rate parity 
B) Uncovered interest rate parity 
C) Absolute purchasing power parity 
D) International Fisher effect 
E) Relative purchasing power parity

Question 12

Which one of these statements is correct?

Accepted Answer

A) Relative purchasing power parity says that the expected spot rate 1 year from now is equal to the current spot rate multiplied by (1 + U.S.inflation rate - Foreign inflation rate). 
B) The interest rate parity formula is based on real rates of interest. 
C) An indirect quote is the number of dollars required to purchase one unit of a foreign currency. 
D) Uncovered interest parity is a combination of the unbiased forward rate and interest rate parity. 
E) If the euro per dollar is more expensive in the forward market than in the spot market,the euro is selling at a discount. 
A) Relative purchasing power parity says that the expected spot rate 1 year from now is equal to the current spot rate multiplied by (1 + U.S.inflation rate - Foreign inflation rate). 
B) The interest rate parity formula is based on real rates of interest. 
C) An indirect quote is the number of dollars required to purchase one unit of a foreign currency. 
D) Uncovered interest parity is a combination of the unbiased forward rate and interest rate parity. 
E) If the euro per dollar is more expensive in the forward market than in the spot market,the euro is selling at a discount.

Question 13

International bonds issued in a single country and denominated in that country's currency are called

Accepted Answer

A) Treasury bonds. 
B) Eurobonds. 
C) foreign bonds. 
D) Brady bonds. 
E) gilts. 
A) Treasury bonds. 
B) Eurobonds. 
C) foreign bonds. 
D) Brady bonds. 
E) gilts.

Question 14

You want to invest in a riskless project in Sweden that has an initial cost of SKr428,000 and is expected to produce cash inflows of SKr231,000 a year for 2 years.The project will be worthless after 2 years.The expected inflation rate in Sweden is 1.7 percent while it is 2.6 percent in the United States.A risk-free security is paying 3.8 percent in the United States.Assume the current spot rate is $1 = SKr7.51.What is the net present value of this project in U.S dollars using the foreign currency approach?

Accepted Answer

A) $31,811.70 
B) $3,799.21 
C) $1,951.11 
D) $93,684.44 
E) $110,043.00 
A) $31,811.70 
B) $3,799.21 
C) $1,951.11 
D) $93,684.44 
E) $110,043.00

Question 15

Which one of these best expresses the value of one currency in terms of a second currency?

Accepted Answer

A) LIBOR 
B) Exchange rate 
C) Depository Rate 
D) Arbitrage rate 
E) Real rate 
A) LIBOR 
B) Exchange rate 
C) Depository Rate 
D) Arbitrage rate 
E) Real rate

Question 16

Which two countries use the krone as their home currency?

Accepted Answer

A) Singapore and India 
B) Switzerland and Sweden 
C) Denmark and Norway 
D) South Africa and Saudi Arabia 
E) Kuwait and Iran 
A) Singapore and India 
B) Switzerland and Sweden 
C) Denmark and Norway 
D) South Africa and Saudi Arabia 
E) Kuwait and Iran

Question 17

Assume you have £100 and can exchange Can$180 for £100.Also assume you can exchange $1 for Can$1.1417 and £1 for $1.5649.How much arbitrage profit in pounds can you earn? Ignore transaction costs.

Accepted Answer

A) £.75 
B) £ 1.09 
C) £ 2.02 
D) £1.96 
E) £.83 
A) £.75 
B) £ 1.09 
C) £ 2.02 
D) £1.96 
E) £.83

Question 18

Which one of these must be true if absolute purchasing power parity is to absolutely hold?

Accepted Answer

A) Customer preferences for an item must be identical across markets. 
B) There must be greater demand for the item in one area as compared to another area. 
C) Forward rates must equal spot rates. 
D) The goods traded must have a feature unique to each individual market. 
E) Transaction costs must be imposed on both ends of a trade. 
A) Customer preferences for an item must be identical across markets. 
B) There must be greater demand for the item in one area as compared to another area. 
C) Forward rates must equal spot rates. 
D) The goods traded must have a feature unique to each individual market. 
E) Transaction costs must be imposed on both ends of a trade.

Question 19

Assume you can exchange Can$179 for £100.Also assume you can exchange Can$1.1238 for $1 and $1.6024 for £1.How much profit can you earn in U.S.dollars if you start out with $500? Ignore transaction costs.

Accepted Answer

A) $3.01 
B) $2.61 
C) $3.57 
D) $3.64 
E) $2.90 
A) $3.01 
B) $2.61 
C) $3.57 
D) $3.64 
E) $2.90

Question 20

Relative purchasing power parity states that exchange rates vary in response to

Accepted Answer

A) differences in interest rates between countries. 
B) changes in the trade barriers between countries. 
C) changes in the tax rates imposed by a country. 
D) differences in the inflation rates between countries. 
E) arbitrage trades involving the exchanged currencies. 
A) differences in interest rates between countries. 
B) changes in the trade barriers between countries. 
C) changes in the tax rates imposed by a country. 
D) differences in the inflation rates between countries. 
E) arbitrage trades involving the exchanged currencies.

Political risk

How many euros can you get for $864 if the direct quote is 1.2452?

Which of the following are means of repatriating funds from a foreign operation?

Assume today you can exchange $1 for €.8026,while 1 month ago €1 was worth $1.2272.Assume you converted €300 into dollars last month and then converted your dollars back to euros this week.What is your net profit or loss in euros?

A gift you want to buy costs $119 in Canada.Assume purchasing power parity exists and you can exchange $1 for Can$1.14 or you can exchange ¥119.2 for $1.How much will the same gift cost in Japan?

Assume the international Fisher effect exists and the inflation rate in the U.S.exceeds the inflation rate in Canada.What can we state for certain given this information?

A foreign bond issued in the United States and denominated in U.S.dollars is called a(n)

Which one of these is a suggested means of reducing long-run exposure to exchange rate risk?

Which one of these expresses the concept that a commodity will cost the same regardless of where the commodity is located or the currency used to pay for it?

Which one of these statements is correct?

International bonds issued in a single country and denominated in that country's currency are called

Which one of these best expresses the value of one currency in terms of a second currency?

Which two countries use the krone as their home currency?

Assume you have £100 and can exchange Can$180 for £100.Also assume you can exchange $1 for Can$1.1417 and £1 for $1.5649.How much arbitrage profit in pounds can you earn? Ignore transaction costs.

Which one of these must be true if absolute purchasing power parity is to absolutely hold?

Assume you can exchange Can$179 for £100.Also assume you can exchange Can$1.1238 for $1 and $1.6024 for £1.How much profit can you earn in U.S.dollars if you start out with $500? Ignore transaction costs.

Relative purchasing power parity states that exchange rates vary in response to

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

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Capital Structure: Limits to the Use of Debt

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Exam 20: International Corporate Finance

Political risk

How many euros can you get for $864 if the direct quote is 1.2452?

Which of the following are means of repatriating funds from a foreign operation?

Assume today you can exchange $1 for €.8026,while 1 month ago €1 was worth $1.2272.Assume you converted €300 into dollars last month and then converted your dollars back to euros this week.What is your net profit or loss in euros?

A gift you want to buy costs $119 in Canada.Assume purchasing power parity exists and you can exchange $1 for Can$1.14 or you can exchange ¥119.2 for $1.How much will the same gift cost in Japan?

Assume the international Fisher effect exists and the inflation rate in the U.S.exceeds the inflation rate in Canada.What can we state for certain given this information?

A foreign bond issued in the United States and denominated in U.S.dollars is called a(n)

Which one of these is a suggested means of reducing long-run exposure to exchange rate risk?

Which one of these expresses the concept that a commodity will cost the same regardless of where the commodity is located or the currency used to pay for it?

Which one of these statements is correct?

International bonds issued in a single country and denominated in that country's currency are called

Which one of these best expresses the value of one currency in terms of a second currency?

Which two countries use the krone as their home currency?

Assume you have £100 and can exchange Can$180 for £100.Also assume you can exchange $1 for Can$1.1417 and £1 for $1.5649.How much arbitrage profit in pounds can you earn? Ignore transaction costs.

Which one of these must be true if absolute purchasing power parity is to absolutely hold?

Assume you can exchange Can$179 for £100.Also assume you can exchange Can$1.1238 for $1 and $1.6024 for £1.How much profit can you earn in U.S.dollars if you start out with $500? Ignore transaction costs.

Relative purchasing power parity states that exchange rates vary in response to

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

Mergers and Acquisitions Web Only

Filters